Q3 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Q3, 2019th earnings Conference call. At this time, all participants line or in the listen only mode.
After the speakers Brett that presentation, there will be a question and answer session.
That's a question during this session you will need to press star one on your telephone.
Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I.
I would now like to have the conference over to your speaker today Mr. Randy Macacos, Sir you May go ahead.
Thank you Michelle.
Good morning, everyone and welcome to the enterprise products partners call to discuss third quarter.
Thousand much in earnings our speakers today will be GMT, Chief Executive Officer, and Randy Fowler.
Isn't and Chief Financial Officer of Enterprises General partner other members of our senior management team are also in attendance for the call today.
During this call we will make forward looking statements within the meaning of section 21. The other Securities Exchange Act matching 34 based on the beliefs or the company.
As well as assumptions made by on information currently available to enterprises management team.
Although management believes that expectations reflected in such forward looking statements are reasonable it can give no assurance as such expectations will prove to be correct.
Please refer to our latest filings with the FCC for a list of factors that may cause actual results could differ materially from those in the forward looking statements made during this call.
So with that I'll turn the call over to Jim. Thank you Randy This morning, I'll cover our earnings first and then give you an update on our projects list.
Starting with earnings we had $1.6 billion distributable cash flow.
In the third quarter that provided another 1.7 times coverage of our distributions.
Today, our DCF was $5 billion, which provided a 1.7 times coverage.
We retained $665 million of DCF in the third quarter, bringing our total to 2.1 billion, but the first nine months of this year.
Adjusted EBITDA for the third quarter was $2 billion, that's up 6% compared to third quarter of last year for a total adjusted EBITDA of 6.1 billion for the first nine months, which is up 14% compared to the first nine months the last year.
Similar to prior prior quarters, our results continue to provide healthy free cash flow.
Giving us the flexibility to fund our growth projects, while maintaining a solid balance sheet and not having to issuing new equity.
During the third quarter, we said six operational records and including total equivalent pipeline volumes natural gas pipeline volumes NGL fractionation volumes crude oil marine terminal volumes and D B and propylene production volumes.
What our upcoming distribution payment in November we began our CET 22nd year of consecutive distribution growth.
We continue to get closer to the 25 year dividend aristocrats benchmark.
Just a select group of stocks with over 25 years of consecutive dividend increases sort of the best that the best.
Of dividend growth and best of the best of dividend growth stocks over this time, we have increased our quarterly distribution rate 71 times through numerous business cycles, including the financial crisis in the last commodity cycle for energy.
We manage enterprise to provide financial stability and growing distributions.
In addition to projects already under construction, we were again successful in terms of underwriting new growth projects during the third quarter.
Based on sanctions.
Jack sanctioned today, we currently expect our growth capital expenditures in 2020 will be in the range of three to 4 billion got dollars.
Given the size and integrated nature of our systems, we're always evaluating our alternatives to reduce the capital intensity of some of these projects, while enjoying the benefits of incremental volumes and our system.
We are evaluating joint ventures with strategic partners not financial partners certain projects and are always looking for ways to optimize our systems based on market conditions, which could include physically changing to service the direction of our pipes.
Sometime our options are contractual this includes using contract provisions to claw back on use natural gas processing capacity from producers under acreage dedication contracts. This would provide us immediate long term capacity while eliminate.
During the need to build another processing plant.
Our ability to keep customers crude oil neat third can't segregated storage in Midland in Houston, and Batshit through our pipelines.
Coupled with our water access has been a key differentiator of enterprise for large producers in large trading firms looking to sell crude into international markets that demand quality.
We recently sanctioned to expansions of our Midland to Echo pipeline system M. Two athree and him to eat for when asked him to the three in July and into the bore in October .
Our M E. Three expansion will add 450000 barrels a day had capacity.
Pipelines expected to be completed in the third quarter at 2020.
The M E for expansion is our latest expansion of our Midland Echo pipeline system that ties into our Eagle Ford crude oil pipeline and provides up to 450000 barrels a day of incremental capacity further expandable up to 540000 barrels a day.
By utilizing our Eagle Ford assets shippers and producers will have the ability to match their pipeline capacity to their allocations of capital between the Eagle Ford and Permian Basin.
Simply put this type of flexibility for our customers is unmatched. Furthermore, these expansions will allow us to optimize costs across our Midland to Echo system.
While DRA has enabled us to maximize the throughput.
MTV, one and M E Twod it has come at an increase in variable costs.
Across these pipelines, we see variable cost of the last segment of incremental capacity exceeding $2, which works when the spread has over 250, but it doesn't work in the current spread environment.
By optimizing volumes across the Midland to Echo pipeline system variable costs should approach to more normalized variable operating costs tend to 20 cents of Arrow. In addition to savings from optimizing volumes across the Midland to Echo pipeline system.
These expansions also give us the bell flexibility to divert crude off of M. E to R seminal pipeline and then convert Seminole back into NGL service.
We think we will eventually need this additional NGL capacity in doing so MTV bore.
The only add a small amount of income incremental capacity to our Midland to Echo system is middle markets supported MTV for could add up to four 540000 barrels a day of incremental capacity.
Just.
In short look at the map and our crude oil system.
Enterprise can transport and optimum cost.
1.3 million barrels a day.
If the market needs more capacity.
Enterprise can ramp that capacity to 1.8 million barrels a day with the zero capital.
The third major project, we announced during the quarter as our PDH two plants.
Mondale is one of the largest petrochemical companies of the world.
And they have been an important customer to enterprise since the early eighties with our first butane isomerization facility.
Got it to build that plant, we have negotiated a fixed cost engineering procurement and construction contract with that SMB.
To build PDH too will we have a long history with the essence be dating back to 1990 bad.
They led construction on nine of our NGL fractionation.
Fractionators plus several other assets at Mont Belvieu numerous numerous other assets on our system.
Relative to market for natural gas. We also recently announced construction of the guilt Gillis lateral which is an LNG oriented natural gas pipeline extension of our Haynesville pipeline system that allows us to move haynesville gas and interconnect volumes to the growing Gulf coast.
LNG quarter.
We also announced a successful open season for the expansion of Atex ethane pipeline similar to other expansion. So our system. This incremental capacity is expected to be achieve largely through improvements in modifications to existing infrastructure versus new pipe.
Work also continues and our other major projects remote most of them to be in service within the next 18 months those projects are a healthy mix of supply and market system conditions, including Fractionators 10, and all that have been at Mont Belvieu gas processing plants at mid town in the Permian.
And Panola in East, Texas, and crude oil petrochemical ethane and LPG dock expansion.
Second PDH, our he ibdh plant and our ethylene export project, we continued to grow our fee based petrochemical midstream services value chain.
This model follows our NGL and crude business model aggregate supplies transport upgrade store optimize and then distribute products to end users, including exports the U.S. petrochemical industry, a significantly advantaged virtually all the world because.
As a low cost feedstocks and significant infrastructure and we'll continue to play on increasing role in value in our value chain for years to come.
In summary, today's earnings and capital discuss on.
Folio of assets continued to perform and provide us with opportunities to grow over the long term, we up a strong history of capital discipline and continued to add to our systems were projects that will generate attractive returns on capital and free cash flow for years to calm.
We're always evaluating our alternatives to reduce the capital and test the intensity of some of our growth while still enjoying the value chain the value that incremental volume bring star system, we have a long history of optimizing our systems, attracting strategic partners and.
Hurting assets and shining overpriced acquisitions, we're a company that prides itself inconsistency in distributions solid balance sheet and extremely supportive general partner.
And what Randy Fowler has emphasized as no surprises and a company that our stakeholders and shareholders can depend on Im looking ahead expect more at the same.
With that I'll turn it over to Randy.
Thank you Jim and good morning, starting with the income statement net income attributable to limited partners for the third quarter of 2019 was $1 billion or 46 cents per unit on a fully diluted basis. Net income included a 39 million dollar noncash loss per asset impairment.
Charges or two cents per unit.
Fully diluted and $86 million in unrealized noncash mark to market hedging losses or four cents per fully diluted unit.
Included in the noncash Mark to market losses was a 95 million dollar hedging loss related to financial instruments used to hedge interest rates for anticipated debt offerings in 2020, and 2021, which is reflected in interest expense and a 9 million dollar hedging gain on financial ins.
Elements, primarily related to our crude oil and natural gas segments.
Adjusting for these noncash items NPU increased.
2% versus the comparable adjusted earnings per unit for the third quarter 2018.
Moving on to cash flow cash flow from operations was $1.6 billion for both the third quarter of 2019 and 2018 in traditional terms our cash distribution payout ratio was approximately 59% with respect to the third quarter of 2019 and 58 per.
With respect to the trailing 12 months ended September 32019, our cash distribution yield is currently 6.4%.
Our last 12 months cash flow from operations yield is approximately 11%.
Free cash flow, which we defined as cash flow from operations minus net capital investments was $2.7 billion for the trailing 12 months ended September 32019, which was a 28% increase compared to the trailing months ended September 32018.
A follow what Jim said regarding capital investments, we have approximately $9.1 billion of major capital projects under construction.
With 3.6 billion of these major projects added since our last earnings call, including our second PDH Midland to Echo for pipeline and that lit get analysts lateral natural gas lateral in Louisiana, approximately 77% of the contracted volumes associated with it.
These projects under construction or with investment grade customers and 70% of the volume weighted contract lengths are 14 years or more.
Assuming our historical returns on capital these assets have the potential to generate approximately $1 billion to $1.3 billion of incremental gross operating margin per year.
Our total capital investments in the third quarter of 2019 or $1.1 billion, including $1 billion of growth capital investments and 91 million of sustaining capital expenditures total investments year to date have been $3.4 billion.
Including 3.2 billion of growth capital investments.
Or 2.6 billion. If you net contributions from JV partners and $233 million of sustaining capital expenditures.
We expect full year growth capital in best investments for 2019 net of contributions from JV partners to be $3.8 billion note that the number in the press release was rounded to $4 billion.
The largest component of the increase from last quarter was the purchase of 30 inch pipe for Midland to Echo for and the Gillis natural gas pipeline lateral which together was $370 million.
We expect $350 million for sustaining capital expenditures for 2019 looking ahead to 2020 and given the projects recently announced we currently expect growth capital investments to be between three and $4 billion.
In terms of capitalization, our consolidated liquidity was approximately $6.2 billion at the end of the third quarter 2019, which included a value available borrowing capacity at our credit facilities and unrestricted cash of $1.2 billion.
As of September 32019, our total debt principal outstanding was $28 billion, assuming the first call date for our hybrids. The average life of our debt portfolio was 14.7 years.
He assumed the maturity date of the hybrids. The average life of our debt portfolio is 19 years, our effective average cost of debt was 4.5%.
The partnership used cash on hand to retire $800 million of debt principle that matured on October 15 2019.
Adjusted EBITDA for the trailing 12 months ended September 32019 was $8 billion and our consolidated leverage ratio was 3.2 times after adjusting debt for the partial equity treatment of the hybrid debt securities and reducing the debt Bob unrestricted cash on her.
Dan.
If we normalize adjusted EBITDA for the last 12 months to eliminate certain spread.
Related activities.
We estimate that our leverage ratio would have been 3.5 times at September 32019, moving onto distribution payments our distribution with respect to the third quarter of 2019 was 44 and a quarter sense and will be paid on November 12. This distribution represents a 2.3%.
The increase when compared to the same quarter of 2018.
As mentioned last quarter and until further notice the delivery of common units under our distribution reinvestment program and our employee unit purchase program is now satisfied through open market purchases instead of the issuance of new units, even with our expanded growth capital and.
Vestments for 2020, we still intend to self fund the equity component of our growth rather than relying on equity capital markets with that Randy we could open up for questions.
Okay, Michel we're ready to take questions from the audience.
And I would remind our audience that we would limit our questions to one question and one follow up.
Ladies and gentlemen, if you have a question at this time please press the star and the number one on your touched on kind of from.
To your question at the answered your question removed himself from the Q. Please press the pound.
The assets you. Please limit yourself with your question. Please press star one again tickled that particular.
Your first question comes from the line of Shneur Gershuni. Your line is now okay.
Hi, good morning, everyone.
Maybe just to start off on the Capex front, a little bit here.
I.
Appreciate the color that you gave around Midland to echo in the in the prepared remarks.
Just wanted to clarify that the total net increasing capacity was was about 500000 barrels.
And then is part of that in terms of your Capex number for this year I sorry for 2020 does that also include the spot terminal or is that not part of 2020 number.
And as a part of the 2020 number.
In the net increase in terms of crude capacity around the enterprise system as a result of Midland to Echo that.
What within that number that fits that on a net basis and the prepared remarks.
On a net basis I think what we're saying as we're adding Midland to XL for which is 450000 barrels a day.
By optimizing the system.
Thank what were taken off or reducing is about 370000, yes.
Right. So yes. So I think the net addition has about 70000 barrels a day Brent Whiteley and were you heard in the and the permit for prepared remarks. They yeah. We're moving a lot of crude for example in Midland that go one I think will move in 620000 barrels a day.
And the variable cost on that has gone up significantly so if you remove.
We could take that to 450000 barrels a day and reduce our cost dramatically.
And then we could convert seminal back to NGL service, which we think will add to that so overall, we're adding 70, we can add an optimum cost we move about 1.3 million barrels a day, but if the market launch that we can ramp that up to 1.8 million barrels a day. So there is an unbelievable amount.
Now.
Of.
Flexibility within our system.
Two.
To change what we're moving.
Okay that that makes perfect sense and then for my follow up question.
Yes, yes, I think it was about to two years ago this quarter.
That you would reset the distribution growth policy.
Just wondering have has anything changed in terms if your views on buybacks and distribution growth rates or are you comfortable with its current distribution growth rate and then on the buyback side is just for offsetting the trip and the employee purchases or are there is there an evolving view on that.
Additionally, this is Randy.
Thanks.
Currently you know on the what we've said around buyback program anyway is we were looking to be opportunistic with that.
Given our success in underwriting attractive growth projects, I think that still where our mindset is.
And and again, we get asked from time to time about a programmatic buyback, but but again I think we'd rather allocate our capital to good growth projects as opposed to coming in and doing programmatic buyback.
And then as far as distribution growth is concerned really we take a look at that.
Year by year.
We're in the early stages of our planning process for 2020 and.
We'll take a look at that and probably will come in and provide some guidance on 2020 distribution growth.
In January really about on the same timeline that we did.
Earlier this year.
Alright, perfect. Thank you very much guys appreciate the color.
Your next question comes from the line of Janney Tony.
Hello.
Hi, good morning.
Just wanted to start off with that with the Capex in the range that you guys had provided there to three to 4 billion was wondering what would drive the lower end versus the higher end. There you mentioned JB potentially being a part of that but it's kind of 3 billion what secured in the upper end could be jvs or maybe there's some other project announcements.
That you could take care over the course, the here that could drive you to the higher end or any other things driving the moving pieces there.
The report.
The next years.
Correct.
Yes, Thanks, Yeah, Jeremy I honestly I think we're we're still in that range of three to four we've got to have a couple of things that we're working on that.
If we.
Our successful in underwriting that that frankly that would still key growth capex into that three to four range.
Got it and then and then Jim as Jim mentioned earlier spot is not included in 2020, while Weve sanctioned the project. The project is still a subject to government approval. So we have elected not to include that in our forecast for growth Capex for two.
20.
Okay. That's helpful. Thanks, and one more question I think you talked about the flexibility between.
Crude oil and not in NGL pipelines kind of being able to flex back and forth was just wondering if you if it ever be a scenario, where yeah one of them could be swap into natural gas service at the market really demanded in the near term and then swap it back to 10 liquid service at a later date, if I if that could ever makes sense if that.
Possible.
Jeremy I wish it was possible, but it's not strictly going to be liquids pipeline.
Flexibility between Ngls, and natural gas and I mean crude oil and less Graham you think differently now I don't.
Well I wish it could.
That's all for me Thanks for taking my question.
Your next question comes from the line of Colton Bean from Tudor Pickering, Holt and company. Your line is now.
And so appreciate the detail and Capex program, just with that 2020 midpoint, three and a half billion any preliminary thoughts on financing for the year I mean should we anticipate debt funding is basically the balance between your retained cash flow and your capex or would you still target something closer to 50% and maybe any excess cash.
Can you toward some of those opportunistic buybacks.
Yeah.
Yes.
Helpful. We'll see what we have next year I think we're still looking we still think about funding it 50% debt and then if you would 50% retained cash flow.
That's sort of are going in position.
Got it and if that resulted in excess cash would that be where you guys look at doing something beyond the drip offset.
Will you know it will just take a look at market conditions at that point in time.
Understood and just a quick one an operation so fairly significant step down equity NGL. This quarter I think historically, we've all talked about number in the 130000 barrels a day range is kind of your C plus or propane plus type recovery. So it doesn't seem like this quarter's end result would be solely attributable to me.
Our injections or just any incremental context in provide on that 111000 equity Ngls.
I think most of that's probably ethane rejection.
Wes.
Natalie.
At or whomever.
At this right most of that all here, Jim most of that's attributable to ethane rejection across the system when they'd be the Rockies or at some of the other places.
Yes, that's helpful.
Okay.
Your next question comes from the line of team Sallie Bailey from Bernstein.
Your line is now open.
Good morning, and are you able to comment on whether capex cost for that opinion echo pipelines are expected to be noticeably lower than the first time.
Just really comparable that comparable comparable.
Not noticeably lower.
Thank you and as a follow up the Eightx expansion announcement kind of comes as rig count is falling in Atlanta and can you give anymore color on whether this is like.
Theres kind of expecting growth or it's more of a backup solution.
When or if they're in or is it that.
Yeah. This is Doug here I can just comment that you never had a customer protests the valuable reliable take way down to Mount Bellevue and we closed the successful open season, that's help at all I can comment on that one.
Okay and that passed another comment kind of theres been any any change are lengthening existing eightx Ken.
The existing Eightx term theres not going to change now.
Okay. Thanks Anthony.
Your next question comes from the line of Tristan Richardson from Suntrust. Your line is now.
Hey, Good morning, guys just following up on some of your comments on identifying strategic partners on projects and some of your markets do you see the greater opportunity on new projects that may not be in service, yet or more on existing capacity currently in place.
Yes kind of hard to do it on existing capacity.
I think probably it's more new projects that we would look at.
Yes, you never say no to anything events depends on what a person's bringing to the table if you've got to.
For example, and petrochemical customer that wants to have a big offtake.
And you might do some on existing assets, but by and large as new assets.
Helpful. Thank you and then the follow up.
So talked about opportunities to optimize existing processing capacity could you talk about to the extent. This is NPD reacting to the U.S. production environment shifting or Austin or just looking at assets that have utilization upside.
Everybody, yes, Theres Theres a base, there's there's the tanker bank contracts, which means we've got to get paid but is that mainly going to get them you got to get the production.
Typically we have downstream numbers in our economics, so that's an issue.
One other things we have on acreage dedications, if people aren't performing up to the production profile that plant was built out then as a certain point, we have the right to reduce their MD Q and use that.
Capacity somewhere else. So it's a safe guard that we always have the right two at a certain point in time to call back and used and reduced the MD Q and use it with someone else.
Helpful. Thank you guys very much.
Okay. Next question comes from the line of piano.
Okay. Thank you.
Your line now okay.
Hey, good morning, everyone.
First question just with respect to the overall growth strategy I think we've seen you guys lean and somebody aggressively air Connex part of the cycle.
Where we're seeing maybe a lot of your peers retrench, a little bit. So you just sort of stand out in that in that respect securities. It is it fair to say that you're deploying maybe assembly strategy.
LPG exports, where your major focus at this point is capturing market share and dissuading competition or is it a little more nuanced in that.
Yeah.
You on top of part of that and then what this is Brad and.
I think you hit it is that we've seen people pull back.
As it relates to midstream or competitors, what we've seen as people pull back.
Is probably over the last six months to nine months, we've seen some incredible opportunities in front of us that have very very good returns have upside either downstream or upstream.
And on top that it's what's very creditworthy customers. So at some point when we're seeing the returns that would that overseeing.
On these on these projects. It's just it's just a very good project for enterprise.
I think the other thing, where we you're seeing us and its along the same lands, but but we have.
We have a broader product line than we can offer I worked in our petrochemical midstream services business. We are very focused on that building building PDH too, but also what we're doing.
Is opening up our storage and distribution systems, such that petrochemicals. It's the same model, we havent crude and NGL sales.
Or it.
Distributed.
Our exported.
But I think you solve enterprise back out of certain projects you know two years ago in three years ago.
And we were pretty vocal about the projects that we would that we wouldn't go after.
And I think it the other day has served us well, but when we look at where to deploy capital right now whether it's an acquisition or whether it's still organic growth is still makes much more sense do organic growth projects to work for enterprise.
Yeah that makes a lot of sense.
On the petrochemical comment seeing octane enhancement really strong again this quarter I'm guessing that's just a continuation of kind of what we're seeing along tier three shortages of octane and I think we get a sense that may be octane is gonna be tight again or even tighter next year. In 2020, just just curious do you think about margins the same way going into next year on octane enhancement and is there any sort of expansion or anything you can do.
So in that business to capture more of that.
This is Chris we're we're seeing.
We expect to see the same sort of spreads next years, we have this year and in fact, we we talk about how we hedge afford and we've done some of that already for 2020.
And then in terms of expansions, we have our Ibdh project, it's coming online at the end of this year and so some of that volume also goes into the alkylation market.
Great elected to address.
Next question comes from the line of P. Hannan from Siemens and his team.
Lines now.
Thank you had good morning.
Given the fast declining Baker Hughes rig count in the likelihood that 2020 happy capital spending activity in production will be lower than current consensus estimates.
How do you see that impacting Apds, Tony 20 outlook and what are you hearing from some of your customers.
One of the things if you look at who our customers are the variable there there are large producers.
Maybe I don't see someone like Exxon or chevron slowing down I don't know about video jail.
Tony but yes, we see we see what you're talking about but the people that we have.
That are really the anchors to our system on a very large guys well I don't think we have is the way of any small cap people at all.
Not not on just directionally.
Minimum.
I think you won't run some in when we.
When we sit on talked to people when we talk to our customers are lot.
What we hear time and time again, and we we read everything that they say.
It is that their capital is going to be down but their production is going to be up.
Because of efficiency and and in some cases completion or ducks.
So while the industry.
We will never repeat what it did in 2018 relative to growth.
When and I'm speaking for enterprise when we read people projected production is actually going to rollover.
It's very very hard and our type curve models in our forecast to make that happen.
No I mean, we've met with a numerous producers customers over the last talked last month.
And every single one with exception of one has said that volumes are going to be up capitals going to be down and usually it's about a ratio of 10, 10% to 15% down on capital, 10% to 15% up on volumes, there's only one customer who said that crude oil volumes would be flat and they said capital will be down but our.
Gas production is going to decrease.
I think anybody that's that's going after crude oil or the has the associated Ngls with it I think what we've heard us at their volumes are going up but I think guest centric type volumes will be going down.
Great Thats Super helpful. Thank you and then my follow up do you see enough customer interest to consider further LPG dock expansions above and beyond what you've already announced.
I think if you look at what we have on the table and expansions that we have and the cost associated with it with with returns that we get at the fees were getting.
I certainly as our expansion comes up in the fourth quarter of 2020.
We've evaluated further expansion opportunities and that's obviously the past several probably go down.
No. That's a that's a relative question. So in terms of capacity that we have contracted right now.
There's a little bit of a gap of opportunity that we have out there and we'll let crude oil or ngls determine how we use that capacity.
But in terms of what we have contracted for the next several years, it's just north of 90%.
Great. Thank you very much.
Next question comes from the line of TJ Schultz from RBC capital markets. Your line is not something.
Great. Thanks, just a question on the Acadian expansion is that driven more.
Hi growth in Haynesville production, you are expecting or are you, bringing more Permian gas ultimately through that system something you guys have talked about before with the condo plan of enterprise North, Texas moving gas over into the area.
I think is mainly given the market.
Two.
So those hinesville producers in other markets.
Was either the river corridor.
Our Perry deal.
Help me here has.
Am I right and I'm, just gives them a market and I'll tell you that lateral if I'm not mistaken Brad it's so completely out oral Natalie.
I'll, let Natalie answer so.
Well like any other project that we do it definitely sold out.
Right, where the producers behind it.
It will get.
Producers to the LNG export facilities.
In South, Louisiana, and Southeast Texas.
A promising exciting project for us.
Okay. Thanks, so moving out of the Haynesville.
Do you still expect to move gas into Beaumont I think you guys had talked about the lumberjack type before or is the primary demand pull into Louisiana here.
Yeah, I'll, let Altai getting inlet Natalie jump in if she wants to we're still working that project, but I will be honest.
So.
It's not flying off the shelves right now is that fair.
That's fair.
Okay understood. Thank you.
Yeah.
Next question comes from the line of keep Stanley from Wolfe Research.
Hi, Michelle thing.
Hi, Good morning, Randy you mentioned, how the that backlog I guess, you added 3.6 billion of new projects to it and I assume PDH too and Midland to Echo for our the larger parts, but are there any other chunky or additions I wasn't thinking those two alone would be really near the 3.6.
Billion I'm, not sure ATAX ridiculous lateral or meaningful capital.
Yeah.
You know we what May have also been included in that was also.
Midland to Echo three could have potentially been in there as well.
In guilt yellow PDH Midland to go for in diligence.
Okay, sorry to clarify Midland to Echo three is not part of that I think it was included when we when we announced earnings in the.
Second quarter.
Okay, So mainly those two projects Ngls.
Follow up question, just can you give anymore color on Midland echoes three in terms of I guess, what's involved in the project you guys announced it just this past summer, it's a pretty tight timeline to the to the third quarter of 2020 I'm. Just wondering how much is new pipe versus a expansion of infrastructure repair pursing on on.
That line.
Hi, and we started work you're talking about how quick we're doing it we're working that's.
The project, but lumber for way announced it.
So we had a running headstart is that fair Graham.
We were doing a lot of work upfront to my next year, we were ready to hit the ground Roberts I guess that's fair.
Got it thank you.
Justin.
Yeah.
Next question comes from the line of Michael the PD from Goldman Sachs.
Your line is now.
Hey, guys. Thanks for taking my question real quick can you just talk about the returns on capital or the bills multiple or or the operating margin. However, you want to adapt to discuss it from Midland Nacco, three and four versus kind of what you got when you first built some of the Permian crude pipes, meaning maybe Midland Nacco wanting to for example.
Yeah, Michael This is Randy and take first shot and again I wont get into.
Talking returns on any specific project, but I mean, if you come back in and I'd, just say that they are comparable to our historical returns and most midstream projects fall in that range of 10% to 15%.
I think what we have said is the flexibility that Midland to Echo for does provide us is just bought coming in and being able to save on those variable operating costs that Jim spoke to earlier, we could come in and that that provides us a good base level return on Midland Echo for that weren't really went up.
Right along with some of the other pipes.
Got it and I'm, just kind of asking that given.
A lot of people expect a sizable Permian overbuilt in the next year, so actually really starting now and just trying to think about how that impacts you differently than how it may impact some of the other players the midstream operators and the business.
Why don't you to try to take a shot does something.
It's a good question.
And I I.
You look at it and we've talked about this before but if you look at total capacity that's coming out of the basin you can run the numbers and say well, there's there's excess capacity and so I think you're seeing it on the pipelines that have come up recently and the pipelines that will come up. We'll go next six months is you really have to go back to what is their supply source.
Yes.
And the beauty of our system is that that we have that Midland pricing point and that we have we have supply to fill up our pipes and then you have to look to see what were those barrels are going and the reason for getting contracts and the people that are typically you're signing these contracts are people that are going to continue to.
Drill that are re upping the for increased volumes with enterprise.
And they want to go to Houston.
If you look at Midland to Echo for there's one crude pipeline that we have it's not a whole lot Atlanta.
So we have one crude pipeline, that's not fall and that's the Eagle Ford pipeline system.
The issue with it is probably not a whole lot different than some of the new pipelines that have come up in the Permian Basin recently is it does not have a daily supply source.
What you're dealing with as you have barrels that are trucked in you have small gathering lines that go into the Eagle for pipeline system, but ultimately it's it's underperforming on a much greater scale than any other pipeline we have in our portfolio. So what we did as went back to Midland and brought us daily supply source into that pipeline.
And we also have the opportunity to do dual contracts for people to have Permian acreage. Some people to have eagleford acreage. So going forward. Our expectation is that pipeline is going to be full no different than the rest of our crude pipelines. So that that was the thought behind that and recognize the fact that we have contracts that support that capacity.
Got it Thats Super helpful.
And then one follow up you all bill talked in your opening remarks about.
You know potentially reclaiming some of the capacity on the gas processing plant.
And I don't know whether those for the new ones built or whether this but legacy ones and the Permian.
Just curious she then later in the queue and I talked about how most of your customer base or are the major sand that they haven't really been reducing production. So what's driving the open capacity on your processing. If your biggest customers the bulk of your customers aren't really cutting production growth rates.
[laughter].
Hi, This is Bryan again up so in terms of the majors.
They're majors for a reason or probably majors because they have a lot of acreage.
So we look at processing plants that are specific acreage to an area.
If you look at crude oil and there have been a total portfolio they are.
Heaving, what they signed up for most cases exceeding what they signed up for but when you look at and so they're issue as some areas are better than other areas and so there may be an instance, where we have a plant that has certain acreage that probably when they go tear up their acreage. It's number four number five on the list and are focused on probably a more crudes sense.
Play and so it benefits us on the crude oil side, but on a processing side. They are underperforming and so we have we have provisions in our contracts to allow us. If you are underperforming to go back and reclaim that capacity and that's what we'll look to doing we have people were working with that we know we could fill that capacity with.
Got it. Thank you guys much appreciate all taken all three of my question.
Next question comes from the line, that's well paradigm from Bank of America.
Sir your line.
Good morning, everyone. A couple questions from me first I wanted to touch on the recent increase in.
You will see freight rates globally, and how that has exploded that has a affected your export volumes.
Although the Spike has subsided recently I think be read still are elevated.
Can you share what you're seeing on your end.
Brent you your dominating this before.
[laughter].
So I think we saw the spikes like like you all did.
And I'm not I'm not put a plug in here on this so.
There was a spike that we saw record record freight rates on Vlccs and that's an issue and that's an issue for producers who go to markets that are forced to export.
So in Houston, what we saw as people basically backed off.
And they backed off from exporting into market was trying to fill itself out and things got a reset but that takes time and.
In this case it took probably a couple of weeks and we saw it kind of settle into a number but the luxury we haven't why people choose to go to Houston as because you have that luxury.
And you have the ability to store barrels and you have the ability to move barrels to refiners in the other ability to meet to me barrels downstream.
What you're saying in other markets that are forced export is either they are severely discounted houston or the barrels aren't flow into the water and you saw big players that are going to terminals outside of Houston being forced to sell back in the field in the Permian Basin.
So when stuff like that happens to me go into Houston as an opportunity for enterprise an opportunity for our customers.
Its been reset and volumes are increasing you'll see volumes probably.
When we come out with our weather earnings you'll see volumes for October very very strong, but there was appeared on time or there well I think it caused the market the pause and say you know is this the right idea to go to this to this terminal.
And to me, it's probably a selling point for us going forward.
Got it.
And maybe a follow up to your comment on ethane rejection earlier can you discuss what the dynamics is right now.
Across your system.
In terms of pipeline volumes and also downstream how that has.
Impacted you the frac spreads that you're seeing.
I think a rule of thumb in general is the further away your from Mont Bel Belvieu.
The more pipeline capacity that is available based on ethane rejection.
In terms of Frac use people.
Well, we're full and so I mean, when you look at fractionation.
Closer you are the pricing point more likely yard to be full so when you look at tertiary Fractionators and we've got some Louisiana.
Also bonds in the mid con there, but to close the yard of the price important Roper all this ngls or leave animal called out the water more more full you are.
And I guide.
In October I think we set a record on ethane and LPG exports of.
Over 21 million barrels I don't know what we're doing in crude you. It's.
Another million it'll probably set a record.
Got it that's helpful. Thank you guys.
Okay.
My last question comes from the line of crude signals.
From Jefferies. Your line is open.
Hey, good morning, guys. Thanks for all the on color.
I too first question just to circle back on the Angie outside of your business you know Tristan Michael asked about the idea pulling back gas processing capacity from your acreage dedicated producers I am just you had noted this is a function of contract terms.
And something that's always been available to you.
Just curious in mentioning it now are you signaling you're going to be more aggressive in pulling back as capacity because you see mismatches now that didn't exist before and because investors are more focus maybe on Capex guidance. I guess is is it change in strategy or are you simply flagging. It so that we're all aware of the contract option.
Yes, I think is to make you aware that we get so many questions on capital discipline, we have ways to increase our business and our throughput without spending money on I think what we're saying as that's one way and I don't think way, it's not a change in strategy. It's just that.
It's just we're going to start doing when they were going to do it like we always have.
Does it make so if you look at producers.
They go ranked our acreage there are certain acreage that we have in that area that ranks number one for one producer.
In a ranks number five for another producer and so Dan a day for works from there for producer day at capacity should probably go to producer acres producer base not going to produce it for some period of time, that's what we're doing.
And it's really not a giant it's not a change its.
Natalie here, Brad I think it's in every acreage dedication deal we had I agree. It's just an optimization techniques that we're highlighting here, it's not saying for something new we've done this the whole time, we've contracted these plants.
Okay. That's helpful enough that I suspect that I just wanted to clarify and then final question for me and this might be for her for Randy, but I'm not sure. It's probably collaborative answer but earlier questions on buybacks and you noted NPD preference to invest in projects that exceed the hurdle rate.
Versus a ratable buyback program I'm just curious if we get a lot of questions about terminal states and how you you way sort of that terminals day consideration of that analysis. For example, you know I know there crude pipeline project you know realizing that Brent talks about you know not every landed location is equal in their contracts in place.
The justified expansions, there's also downstream considerations, but I'm just curious when you get to and beyond the contract term market.
How do you how do you view that investment versus you know permanent retirement of a unit and all future distributions tender to attracting.
Yeah.
Because you Chris a little bit what you're talking about is really how do we feel about re contracting when when the based contracts are up so I'm on Pos at the gym or Brent on I think a good example.
In the Haynesville wouldn't it.
When we put that pipeline and service I think we were getting.
25 cents.
Huh.
I'm good between 20 930 times, what we're getting.
And.
Now this now what we're getting on that spread is what.
Non engineered 12 to.
12 to 15, but what we did so so it would look at then say boy Thats Contra Essent re contracting Lucy.
We're getting and our gathering there's probably 20 to 30.
And so so if I look at it all in.
We get in the same revenues just shifted as to where we're getting.
The Eagle Ford pipeline that Brent talked about what are the things that tying it back to Midland does it really mitigates, our re contracting risk because weve tied it back to a daily market that we can we can move crude out now now I don't know what's the spreads.
We're going to be but we have contracts that support that I think if I look at all of our crude contracts out of the Permian Brent you're 90% contracted owned those and those terms don't end for seven or eight years is what I would I'd I'd call. It 10 years nine years asked so.
And.
Debonair every one of those contracts I think with exception of one have an associated dock deal. So we've got nine to 10 years left at pretty decent fees on the transport, but every one of them have ER Doc deal and some of them may have storage deals to go along with that.
Great appreciate that color hearing, Chris a little bit when I mean, when you think about it as far as re contracting in the underlying cash flow assumptions that enters into your buyback consideration to because it's all embedded into cash flow stream of if you take about a cash flow per unit.
Yeah for sure I I think what I was just learning as you know Jim's talking about that dividend aristocrats and you guys. It had a really phenomenal scheduled quarterly quarterly raises here through some pretty tumultuous period. So I think we look at and we look at this growth and to pay out and that feels fairly secured obviously you know everybody susceptible to respond.
The business longer term I was just kind of trying to frame up.
Randy how you guys think about that uncertainty versus starting a certainty of cash distribution growth and when you think about buybacks and retirement of that and that stream Allen all factors together.
And I appreciate the guy.
[noise] Michelle. This is this is randy or what have been our last question.
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Great fight fight it can take seven or eight slide five paid five nine to five six.
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For five to seven 3.04 and enter conference I'd.
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